CAG will audit private companies, PPPs having revenue sharing pact

New Delhi: Regretting that economic progress has thrown up a class of 'rent seekers', Comptroller and Auditor General Shashi Kant Sharma on Tuesday said the CAG will continue to audit private companies and Private Public Partnership (PPP) projects in cases where revenue sharing with the government is involved.

"Work on telecom audit is already in progress and I am hopeful that our first report would be ready before the year end. A report on gas and oil exploration will be presented to Parliament soon. We will be taking up performance audit of some ongoing PPP projects shortly," he said while speaking at a conference on corporate fraud.

Noting that CAG audit will not cause any discouragement to investors, Sharma said, "in a mature market economy, where there is very little scope for manipulations and fudging, why should companies fear such audit if they have nothing to hide."

Capitalism based on rent seeking, he said "is not just unfair, but also bad for long term growth. In such an environment, resources are mis-allocated, competition is repressed and dynamic new firms are stifled by better connected players".

Rent seeking refers to instances when a company or individual use public resources to obtain economic gain from others without reciprocating any benefits back to society.

"Many of the corporate tycoons, throughout the emerging economies, are today accused of making fortunes by "rent seeking".

They want to grab a bigger slice of the pie rather than making the pie bigger," he said, adding the industries vulnerable to such abuses include banking, mines, telecom spectrum, utilities, oil and gas and public infrastructure.

Although several private companies, especially in telecom, oil and power have resisted audit by CAG, the Supreme Court in its latest judgment had ruled that any entity using public resources in its business and sharing revenue with the government can be audited by the CAG. "Our stand has been the same since long," Sharma said.

Sharma said India is a young and restless nation where youth and deprived sections are angry about corruption, which they feel is on account of "collusions between sections of government and select private players".

"We must ensure that corruption and fraud doesn't spill out into becoming an issue that would unsettle the growth of the nation... The economic progress that has created a class of 'rent seekers' has also created its nemesis, a new, educated, urban, taxpaying middle class that is aware of its rights and role, and pushing for a change for the good of the nation," he said.

Sharma emphasised that there should "be no doubt that the principle (laid down by the Supreme Court) which is applicable to spectrum, applies to all natural resources which belong to public and where revenue is to be shared with Government; and CAG is duty bound to report to Parliament in all such matters".

The CAG had earlier initiated an audit of private telecom companies after TRAI allegedly found they were under-reporting income to avoid sharing it with the Government. The telecom companies later approached the High Court against CAG audit, but their plea was rejected. Supreme Court too upheld the ruling of the HC.

Similarly private power distribution companies resisted CAG audit, but their plea was rejected by the Delhi High Court. CAG is currently engaged in audit of these discoms.

Elaborating on the need for auditing companies engaged in revenue sharing with the government, Sharma said "there is evidence to suggest that countries that do well to counter crony capitalism generally have better institutions.

"Governments must aim to improve regulation and boost competition. Further, rules are to be enforced rigorously so that they are ignored less freely."